FULL YEAR RESULTS PRESENTATION WELL POSITIONED FOR CONTINUED GROWTH 3 April 2017
AGENDA Introduction and overview John Hornby Financial review David Main Strategic progress and outlook John Hornby Questions 1
2016 OVERVIEW Continued double digit revenue growth Extremely strong performance across all segments 140 new products brought to market Additional manufacturing capacity Expansion in Spain and Hong Kong Continued LED growth Strong delivery across all areas of the business 10,000m 2 additional capacity built in China expanding the site to 52,500m 2 Successful IPO has provided us with strong platform for further growth Ambitious strategy for growth into new sectors and territories Focus on expansion opportunity in LED lighting and wiring accessories Trading in the new financial year has been stronger than expected, new business wins and a full pipeline of new product launches underpins our growth forecast Luceco remains well placed to deliver another strong year of growth and profitability in line with its strategy 2
FINANCIAL HIGHLIGHTS Revenue ( m) Gross profit ( m) Adjusted profit after tax 1 ( m) 133.8 47.8 12.3 103.1 33.8 5.8 2015 2016 2015 2016 2015 2016 Revenue growth 29.8% Gross margin 2015: 32.8% 2016: 35.7% EPS 1 2015: 4.2p 2016: 8.5p ROCE 1 2015: 21.2% 2016: 24.7% Adjusted profit after tax growth 1 112.1% 1. Stated before exceptional IPO costs. 2. EPS reflects the share subdivision and share issue that took place in 2016 (basic EPS 6.7p). 3
WELL POSITIONED FOR CONTINUED GROWTH 1 New Product Innovation 2 Manufacturing agility and efficiency 5 Ethical treatment of employees 3 High quality products at competitive prices 4 Flexible distribution 4
FINANCIAL OVERVIEW 5
HIGHLIGHTS 2016 2015 Growth Revenue 133.8m 103.1m 29.8% Gross profit 47.8m 33.8m 41.4% Gross margin 35.7% 32.8% 2.9ppt Adjusted operating profit 1 17.6m 11.5m 53.0% Adjusted operating margin 1 13.2% 11.2% 2.0ppt Adjusted profit after tax 1 12.3m 5.8m 112.1% Adjusted EPS 1,2 8.5p 4.2p 102.4% Proposed final dividend 0.3p n/a 1. Adjusted operating profit, adjusted operating margin and adjusted profit after tax represent operating profit, operating margin and profit after tax adjusted for exceptional IPO costs of 2.6m. 2. EPS reflects the share subdivision and share issue that took place in 2016 (basic EPS 6.7p). 6
PROFIT AFTER TAX BRIDGE 1,882 (3,239) 2,674 (4,559) 10,069 (570) 218 12,292 (2,635) 9,657 5,817 Profit after tax 2015 Growth Product mix Cost engineering/ economies of scale Overhead including inflation and currency Investment to support growth Stock provision increase Interest and tax Adjusted profit after tax 1 Exceptional IPO costs Profit after tax 2016 1. Before charging exceptional IPO costs. All figures stated in 000. 7
SEGMENTAL PERFORMANCE 20 new products successfully launched for sale in all territories Further penetration of the Group s product range into the existing customer base Investment in overhead (NPD & Sales) to support future growth. LED Lighting Revenue Operating profit 33.0m up 41.6% 2.3m up 27.8% Operating profit margin 7.0% decrease of 9.1% Wiring Accessories Revenue Operating profit 62.2m up 29.9% 11.3m up 76.6% Operating profit margin 18.2% increase of 35.8% Further penetration of the Group s product range into the existing customer base Agreements signed with two major housebuilders Significant new business wins in UK and Europe Continued range expansion Portable Power Revenue Operating profit 33.2m up 15.3% 3.4m up 17.2% Ross and other Revenue Operating profit 5.3m up 71.0% 0.6m up 200% Production brought in-house and reengineering, have reduced costs New retail contracts won Operating profit margin 10.2% increase of 1.0% Operating profit margin 11.3% increase of 73.8% 8
SUMMARY CONSOLIDATED INCOME STATEMENT 2016 2015 000 000 Revenue 133,753 103,055 Gross profit 47,826 33,834 Operating profit before exceptional IPO costs 17,645 11,451 Exceptional IPO costs (2,635) Operating profit 15,010 11,451 Net financing expense (2,811) (3,184) Profit before tax 12,199 8,267 Taxation (2,542) (2,450) Profit for the year 9,657 5,817 Earnings per share (pence) Basic 6.7p 4.2p Revenue growth of 30.7m (29.8%), 22.8m (22.1%) on a constant currency basis Gross margin improved to 35.8% Natural hedge at gross profit level, impact of currency movements is (0.1)m Operating profit includes (1.1)m currency impact on overheads. No significant plc costs in 2016 Exceptional items represent one-off IPO costs of 2.6m Interest cost reduced due to repayment of shareholder loans and Chinese debt Effective tax rate reduced from 29.6% to 20.8% as tax planning measures were executed in the year 9
SUMMARY CONSOLIDATED BALANCE SHEET 2016 2015 000 000 Non-current assets 33,698 27,452 Current assets 71,946 52,807 Total assets 105,644 80,259 Current liabilities 55,161 52,241 Non-current liabilities 12,145 25,466 Total liabilities 67,306 77,707 Net assets 38,338 2,552 Total equity 38,338 2,552 Non-current assets increased due to investment in further manufacturing capacity Increase in current assets due to revenue growth and also investment in stock to support future growth across all geographies Current liabilities are higher as increase in trade creditors is partially offset by reduction in borrowings Non-current liabilities reduction due to repayment of debt following the IPO 10
CASH FLOW 2016 m 2015 m Adjusted EBITDA 20.8 14.0 Adjusted Operating Cash flow 6.6 8.3 Funds tied up in working capital increased by 14.6m to 37.7m. 5.8m increase due to currency. Working capital major focus for 2017 Cash conversion 31.7% 59.3% Constant currency cash conversion 59.6% Tax paid (1.3) (1.0) Financing inflows 4.2 0.8 Capital expenditure (7.7) (5.3) Exchange rate fluctuations 0.1 (0.2) Net cash flow before exceptional IPO costs 1.9 2.6 Exceptional IPO costs paid (2.5) 0 Net inflow of funds and debt reduction post IPO Increased capital expenditure due to expansion of manufacturing facility Pre exceptional IPO costs net cash flow yoy decrease of (0.7)m Net cash flow (0.6) 2.6 Adjusted EBITDA ( earnings before interest, tax, depreciation and amortisation Adjusted operating cash flow is defined as adjusted EBITDA plus/minus movements in working capital Cash conversion s defined as adjusted operating cash flow divided by adjusted EBITDA 11
STRATEGIC PROGRESS 12
OVERVIEW Fully integrated model Wholly-owned Chinese manufacturing with local know-how and expertise High quality, low-cost manufacturing; supply chain aligned to client needs Established routes to market Highly regarded UK business; quality blue-chip customer base Expanding UK and international sales networks; well placed for LED growth opportunity Rapid growth in the LED market Well positioned to continue impressive organic growth trajectory Consolidation opportunities in a fragmented market Total global market opportunity of US$70 billion by 2019; UK market 1.2 billion by 2019 Culture of innovation with focus on execution Development of China facility, well invested for future growth Innovative and expanding product ranges within wiring accessories and portable power; Anglo-Chinese research and development team able to meet customer demands Strong pipeline of new products to bring to market Track record of financial delivery Significant growth in revenue and operating profit achieved Number of employees c2000 R&D 2 staff c68 Number of product innovations 2016 140 Number of customers c1,100 13
WELL POSITIONED FOR FUTURE GROWTH 1 New Product Innovation On-going pipeline of new products suitable to multiple channels Differentiated design and product offering Track record of successful product launches Speed to market 2 Manufacturing agility and efficiency Wholly-owned facility Investment in automation and process efficiency High quality, low cost Consolidation of product categories Quality and ethical control 3 5 Ethical treatment of employees Fair and equal treatment of all employees Investment in people and development of skills Control of employment conditions for Chinese workforce In partnership with local Chinese community Create Shareholder Value Ability to supply multiple brands and product categories 10,000m 2 UK distribution centre Strong expertise in supply chain Growing localised distribution network High quality products at competitive prices Support teams based in key locations Responsive marketing and digital functions Long-standing customer relationships Dedicated supply chain, sales and marketing teams in UK 4 Flexible distribution 14
PRODUCT INNOVATION Recessed Architectural Panel for typical office and school ceilings. Emergency Exit lights, for safe and legal lighting during power outages. Continuous Linear Light system for corridors, schools and offices Eco Warehouse light, for lighting racking and large areas Waterproof Warehouse Light, Used for food storage and industrial areas Commercial High Power Floodlight, for lighting car parks and outdoor spaces
GROWTH DRIVERS LED Compelling benefits of LED provides once in a generation disruptive technology Global LED lighting market and size Efficacy by lighting technology, Lumens/Watt Rapidly growing LED market: office and industrial applications will grow fastest with retrofit LED lighting $70bn $62bn $54bn $47bn $40bn $32bn $24bn $17bn 2012 2013 2014 2015F 2016F 2017F 2018F 2019F Source: Frost & Sullivan; World LED Lighting Market (2015 Update) Source: Goldman Sachs; LED lighting report UK lighting market - LED taking market share LED is taking market share from other lighting sources Lifetime by lighting technology ( 000s hours) 1.6bn 1.5bn 1.5bn 1.6bn 1.8bn 1.9bn 2.1bn 2.2bn 2.2bn 95% 91% 5% 9% 15% 20% 26% 32% 39% 44% 47% 85% 80% 74% 68% 61% 56% 53% 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F Non-LED LED Lighting Source: US Department of Energy SSL forecasts 16
GROWTH DRIVERS LED with Luceco ideally positioned to outperform the market Key market growth drivers Technology disruption creates market entry opportunity both in terms of product and people. LEDs increasingly efficient with improving ROIs LED retrofit significant additional activity in the commercial and public sector lighting space Supportive legislation Bans on incandescent bulbs in many jurisdictions including EU, USA and China Energy efficiency laws set to further proliferate Track record of growth: Luceco invoiced sales 1.5m 10.6m 23.3m 33.0m and how Luceco takes advantage LED provides only upside No traditional lighting business unlike many competitors so no cannibalism or conflict of interest. Leveraging established customer base Almost all current customers have the ability to distribute LED Wholesale Access via existing UK wholesale/trade distribution channels as a trusted vendor Retail sales of domestic LED lamps and floodlights etc. through existing customers and expanding cross border Projects new channel with significant potential Low cost manufacturing at own China factory Concept designs from Europe/US Product Managers 40+ person LED engineering team at own factory Strong pipeline of new product launches in 2016 Flexibility to increase production capacity when current site is expanded 2013 2014 2015 2016 Note: Company 2011 and 2012 financials stated in UK GAAP, 2013-2015 financials under IFRS. 17
GEOGRAPHY Group Revenue by location (%) Customers across 75 countries UK 86% Middle East 4% Europe 4% Rest of world 6% 1. Research and development ( R&D ). 18
ACQUISITION STRATEGY UK Expansion International Expansion Consolidation of UK market Fragmented domestic electricals manufacturing sector Provides additional product to push through existing distribution channels Enables cost savings through accessing Chinese operations Multiple opportunities identified to supplement organic growth in the UK Chinese manufacturing facilities Consolidation of manufacturing process / supply chain to: Control / de-risk Gain international market access Achieve economies of scale Access to overseas markets Allows existing products to be marketed to new customers securing economies of scale Ability to tap into established customer bases abroad De-risks entry into new geographies Target synergies leveraging recently expanded China facility Bolt on acquisitions to supplement organic growth 19
CHINA UPDATE FACILITY S COMPETITIVE ADVANTAGE LUCECO S MAIN MANUFACTURING FACILITY Wholly-Owned Foreign Enterprise ( WOFE ) based in Jiaxing, near Shanghai Decision taken by management in 2007 to invest in own facility started production in 2008 Well invested with c. 20m invested to date Workforce of c.2,000 employees CHINESE SUBSIDIARY TURNOVER GROWTH 1 (m) 461 362 283 211 136 103 44 511 The Chinese facility has been expanded to 52,500m 2 capacity Key benefits: Low-cost R&D and manufacturing High quality control Supply chain efficiency Marketing benefit with blue-chip retailers 60%+ of Group product now manufactured at own factory The Company has well established relationships with Chinese suppliers including a 15 year relationship with the other main supplier in Ningbo LED commenced at own factory in 2014 and in 2016 management believe this represented approximately 30% of Chinese factory turnover set to grow through new product pipeline and increased sales activity 2009 2010 2011 2012 2013 2014 2015 2016 1. GBP/RMB = 9.45 WELL LOCATED SITE Shanghai Jiaxing Note: Company 2011 and 2012 financials stated in UK GAAP, 2013-2015 financials under IFRS. 20
SUMMARY AND OUTLOOK 21
2016 SUMMARY Continued double digit revenue growth Extremely strong performance across all segments 140 new products brought to market Additional manufacturing capacity Expansion in Spain and Hong Kong Continued LED growth Strong delivery across all areas of the business 10,000m 2 additional capacity built in China expanding the site to 52,500m 2 Successful IPO has provided us with strong platform for further growth Ambitious strategy for growth into new sectors and territories Focus on expansion opportunity in LED lighting and wiring accessories Trading in the new financial year has been stronger than expected, new business wins and a full pipeline of new product launches underpins our growth forecast Luceco remains well placed to deliver another strong year of growth and profitability in line with its strategy 22
OUTLOOK Trading in the new financial year has started stronger than expected Group continues to grow market share in the UK and other, newer markets, at margins in line with expectations. Growth forecasts for 2017 underpinned by A strong order book New business wins Full pipeline of new product launches Confident in our ability to build on our strong 2016 performance 23
DISCLAIMER This presentation and information communicated verbally to you may contain certain projections and other forward-looking statements with respect to the financial condition, results of operations, businesses and prospects of Luceco plc. These statements are based on current expectations and involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Any of the assumptions underlying these forward-looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. Nothing contained in this presentation or communicated verbally should be construed as a profit forecast or profit estimate. Investors or other recipients are cautioned not to place undue reliance on any forward-looking statements contained herein. Luceco plc undertakes no obligation to update or revise (publicly or otherwise) any forward-looking statement, whether as a result of new information, future events or other circumstances. Neither this presentation nor any verbal communication shall constitute an invitation or inducement to any person to subscribe for or otherwise acquire securities in Luceco plc. 24